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Cost of health benefits rises 4% for family coverage

The cost of health benefits for employers and employees rose by 4% for family coverage nationally this year, continuing a broad trend of relatively smaller increases in recent years, according to the most widely followed annual survey.

Premiums for family coverage averaged $15,745 this year, with workers paying an average of $4,316 of the cost, according to the Kaiser Family Foundation/Health Research & Educational Trust 2012 Employer Health Benefits Survey released Tuesday.

Premiums for single coverage increased by 3%, to an average of $5,615, with the worker paying $951 of the cost.

Although relatively modest, the rise in the cost of providing health benefits still outpaced the 2.3% rate of inflation. Nor is the long-term trend heartening. Since 2002, the cost of health benefits has increased by 97%, compared with a 28% increase in inflation.

The increase has been even sharper going back to 1999 - a 172% increase in health benefit costs, compared with a 38% increase in inflation. And the survey does not take into account changes in health plans, such as higher deductibles, coinsurance and other cost sharing.

The average annual cost of family coverage now works out to the equivalent of $7.57 an hour in wages. It also works out to nearly 31% of the estimated median household income of $50,938, based on a recent analysis of U.S. Census data by Sentier Research LLC.

Economists consider the rising cost of health benefits to be one of the factors in the stagnant growth in incomes in the past decade. Basically, with each passing year, a larger share of workers' total compensation has been going to offset the cost of health insurance, leaving less money for pay increases.

Still, the average increase in premiums this year contrasts with a 13% increase in 2003 and a 10% increase in 2004.

"A 4% increase is simply good news," Drew Altman, president and chief executive of the Kaiser Family Foundation, said in a teleconference.

The general trend also shows improvement.

The cost of family coverage increased 30% from 2007 to 2012, compared with a 51% increase from 2002 through 2007.

"We've brought down the extreme increases that we saw in the last decade," said Dave Osterndorf, chief actuary of Towers Watson.

The smaller increases have been partly attributed to the sluggish economic recovery, which may be prodding people to put off seeking care. The growth in health plans with high deductibles also could be a factor.

Roughly one-third of workers who get health insurance from their employer are in plans with at least a $1,000 deductible. And 19% are in high-deductible plans with a savings option, such as a health savings account, up from 8% in 2009.

But Osterndorf said that employers are concerned that if employees and their families have been deferring needed care, costs could jump in coming years.

The relatively small increase in premiums this year could be short-lived. Two recent surveys of employers by benefit consultants project larger increases in health benefit costs next year:

Large employers surveyed by Towers Watson expect costs to increase 5.3% next year after making changes in their health plans, such as raising deductibles.

Large and small employers surveyed by Mercer Health & Benefits LLC expect costs to increase by 6.5% after making changes in their health plans.

Rob Grant, a principal with Mercer Health & Benefits who works with clients in Wisconsin and Illinois, said their survey has shown increases averaging 5% to 6% in recent years.

The increases would have been higher were it not for changes in the benefits provided by employers. Underlying costs have been increasing at about 9%.

Premiums also vary based on benefits, geography and the size and type of employer.

James McCormack, chairman and chief executive of Diversified Insurance Services Inc. in Brookfield, said his company expects a 19.7% increase in premiums for next year.

The increases generally were smaller this year than in the past, McCormack said. But insurance broker's clients - generally employers with 25 to 500 employees - are looking at increases of 10% to 12% next year.

Diversified Insurance was one of the first brokers to encourage employers to adopt wellness programs to help control costs. Those programs are now widespread, particularly among large employers.

An estimated 93% of large employers offer a wellness program, and 22% of employers with more than 1,000 workers have an on-site clinic, according to the survey by Kaiser, a health policy research organization, and the Health Research & Educational Trust, an affiliate of the American Hospital Association.

But he said the country still is a long way from slowing the rise in health insurance premiums and health care costs.

"It's a lot of little pieces coming together in a comprehensive model," Osterndorf said. "What everyone wants is an easy answer, and there will never be an easy answer to health care. It's a complex problem."

The Kaiser/HRET survey was done between January and May of this year and included 3,326 randomly selected, non-federal public and private employers with three or more workers. Among its other findings were:

An estimated 2.9 million young adults this year are covered by a parent's health plan under provisions in the Affordable Care Act, the federal health care reform law. That's up from 2.3 million last year.

Workers on average pay 18% of the total cost for single coverage and 28% for family coverage - the same percentage as last year and relatively unchanged over the past decade.

An estimated 61% of employers offer health benefits. But only 50% of employers with three to nine employees offer health benefits. The percentage increases to 73% for employers with 10 to 24 workers. Essentially all large employers offer health benefits, although part-time workers may not be eligible.